Accounting for redundancy query

Accounting for redundancy query

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Hopefully just a quick question ...

Redundancy process has begun in this financial year.  So redundancy 'triggered' this year.

Employment Contract ends in the following year and redundancy payment is to be made then.

Which year does the redundancy cost fall into? Should there be a provision / is it matched to the 'trigger' or accounted for when actually paid?

I assume prudence would call for a provision? The issue at this stage is management rather than stat accounts.

Thanks

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By Towards excellence
12th Jan 2010 15:03

Current year, I would say
Based on guidance from FRS 12: Example 5A: Closure of a division-no implementation before balance sheet date

On 12 December 2000 the board of an entity decided to close down a division. Before the balance sheet date (31 December 2000) the decision was not communicated to any of those affected and no other steps were taken to implement the decision.

Present obligation as a result of a past obligating event - There has been no obligating event and so there is no obligation.

Conclusion - No provision is recognised (see paragraphs 14 and 77).

Example 5B: Closure of a division - communication/implementation before balance sheet date

On 12 December 2000 the board of an entity decided to close down a division making a particular product. On 20 December 2000 a detailed plan for closing down the division was agreed by the board; letters were sent to customers warning them to seek an alternative source of supply and redundancy notices were sent to the staff of the division.

Present obligation as a result of a past obligating event - The obligating event is the communication of the decision to the customers and employees, which gives rise to a constructive obligation from that date because it creates a valid expectation that the division will be closed.

Transfer of economic benefits in settlement-Probable.

Conclusion - A provision is recognised at 31 December 2000 for the best estimate of the costs of closing the division.

Saeed

 

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By naomi2000
29th Jan 2010 12:12

redundancy provision

I think it depends how far you got in the redundancy process in the current year. If you got as far as selecting and notifying the redundancy candidates, you should definitely provide.

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